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Retailers Push Against Sales Tax Exemption

Nonbinding Senate measure in support of Internet sales tax could pave the way for future legislation.

Brick-and-mortar retailers like Wal-Mart Stores Inc. see an opportunity to claim victory in a lobbying duel against online companies that don’t collect sales tax from their customers.

Retailers are urging U.S. senators to take a non-binding vote this week to demonstrate support for allowing states to impose sales taxes on out-of-state online sellers. Opponents including EBay Inc. have prevented House or Senate action so far in a decade-long dispute.

“If this gets 60 votes in the Senate, it’s a pretty impressive sign,” said Jason Brewer, vice president for communications and advocacy at the Retail Industry Leaders Association, a group based in Arlington, Virginia, that represents companies such as Target Corp. and Dollar General Corp. “Just take a look at the political landscape. How many issues are attracting bipartisan support these days?”

The lobbying has been particularly intense among Republicans, who face competing pressures. Many of their home state governments and local retailers support the bill, as does Amazon.com Inc., the world’s largest online retailer, which is expanding its physical presence in many states. Anti-tax groups including Americans for Tax Reform oppose it, maintaining that the levy would constitute a new type of taxation and let states reach across their borders.

Gathering 60 votes for an Internet sales tax is important for proponents, because that’s the number needed for future legislation to overcome procedural obstacles in the 100-member Senate.

Senator Jeff Sessions of Alabama, who hadn’t previously backed the measure, said fellow Republicans had made a “strong case” to him to support it.

“I think the time may be here for that fix,” Sessions said in a brief interview yesterday.

The bill would let states collect taxes from out-of-state sellers, which has been prohibited since a 1992 Supreme Court decision. The measure includes an exception for smaller online companies that have gross annual sales of less than $1 million.

Consumers are typically required to pay use taxes to their home states on purchases they make from out-of-state retailers. In the 45 states with sales taxes, relatively few taxpayers file those returns.

The National Retail Federation, which supports the bill, estimates that state and local governments forgo $24 billion a year in taxes from Internet purchases by residents of their states.

Budget Resolution

Any vote this week would occur as part of the Senate’s debate on a budget resolution, a measure that isn’t going anywhere this year and isn’t used to make binding law. Senator Richard Durbin of Illinois, the leading Democrat on the issue, said a vote was “possible” this week.

Instead, a test vote would serve as a signal that the bill’s backers have enough clout to overcome procedural hurdles in the Senate if they attempt to bring it up later.

Bryan Bieron, senior director of global public policy at EBay, said the text of the proposal up for a vote may be more generic than the legislation retailers are promoting.

“It’s certainly different than voting on something that’s actually got specific recommendations on it,” he said.

A failed Senate vote, or even a decision not to make an attempt this week, could be a signal that retailers and their allies in Congress don’t think they have the votes yet.

“Whether it gets 60 votes or 30 votes, I’m convinced that the big-box stores and state tax collectors will find a way to get this onto the Senate and House agenda this year,” said Steve DelBianco, executive director of NetChoice, a coalition opposing the bill whose members include Facebook Inc. and Oracle Corp.

Bieron said the vote would help clarify where individual senators stand and lead to a more concentrated effort by affected companies.

The Senate bill, written by Wyoming Republican Mike Enzi, has 26 co-sponsors as of today. Among the supporters are seven Republicans, including Wal-Mart’s home-state senator, John Boozman, and both senators from Tennessee, which relies heavily on sales taxes because it doesn’t tax individuals’ wages.

Lindsey Graham of South Carolina and Susan Collins of Maine both became co-sponsors in the past week.

Republican Backing

With that Republican backing, if all Senate Democrats support it, that would be enough to gather the 60 votes needed.

Democrats hold eight of 10 U.S. Senate seats in the five states that don’t levy sales taxes -- Alaska, Delaware, Montana, New Hampshire and Oregon. Delaware’s Thomas Carper became the only one of those 10 senators to sign on as a co-sponsor of the bill on March 18.

Montana Democrat Max Baucus, chairman of the Senate Finance Committee, said yesterday that the proposal is “not ready.”

Brewer said backers of the bill face an “uphill battle” with lawmakers from those non-sales-tax states.

Amazon.com supports the proposal. The company, which is expanding its physical presence into more states, would be required to collect taxes in those jurisdictions anyway, giving it an incentive to seek a national rule that would govern its competitors with smaller geographic footprints.

DelBianco said the bill would allow state tax auditors to reach beyond their borders and require companies to purchase computer systems to make sure they’re following the differing state and local sales tax rules.

Companies such as Wal-Mart and Best Buy Co., he said, are “large enough to afford the systems to figure this complexity out.”

The latest versions of the Senate bill include language that would require states to provide software to sellers if the state doesn’t join the multi-state Streamlined Sales and Use Tax Agreement designed to harmonize tax collection.

The bill may be tougher to advance in the Republican-controlled House. A companion measure in the House has 47 co-sponsors, including Alabama Republican Spencer Bachus, chairman of the House Judiciary subcommittee with jurisdiction over the issue. The lead sponsor is Steve Womack, an Arkansas Republican whose district includes Wal-Mart’s headquarters in Bentonville.

Brewer, of the retail group, said companies are using a free-market argument to appeal to Republicans.

“In a true free market,” he said, “all retailers compete on price without the government’s thumb on the scale.”

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